Mr Gloss Pty Ltd v Henry Mischel - [2011] VSC 40

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 10897 of 2009

MR GLOSS PTY LTD (ACN 006 614 811)	First Plaintiff
KNOWLEDGE SERVICES PTY LTD (ACN 093 526 955)	Second Plaintiff
v
HENRY MISCHEL	First Defendant
MISCHEL & CO PTY LTD (ACN 079 528 699)	Second Defendant

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JUDGE:	Davies J
WHERE HELD:	Melbourne
DATE OF HEARING:	9 February 2011
DATE OF JUDGMENT:	23 February 2011
CASE MAY BE CITED AS:	Mr Gloss Pty Ltd v Henry Mischel
MEDIUM NEUTRAL CITATION:	[2011] VSC 40

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INTERLOCUTORY INJUNCTIONS – Application for extension of freezing orders made ex parte – “Arguably good case” not disputed – Allegations of “serious dishonesty” – Whether sufficient to establish inference of risk of dissipation of assets – Defendants’ assets wholly secured – No real risk of dissipation of assets – Supreme Court (General Civil Procedure) Rules 2005 r 37A.05.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. N E Magee SC with Mr. T P Mitchell	Foster Nicholson Legal
For the Defendant	Mr. T Woodward SC with Mr. Z Partos	Kenna Teasdale Lawyers

HER HONOUR:

This is the return of ex parte freezing orders obtained by the plaintiffs against the defendants and non parties. The further hearing commenced on 22 December 2010 but was adjourned until 9 February 2011 on the application of the defendants so that they could supplement their evidence in opposition to the extension of the freezing orders.

The plaintiffs’ case against the defendants arises out of failed investments made by the defendants on the plaintiffs’ behalf. The claims are based on misleading and deceptive conduct and breaches of directors’ duties and fiduciary duties. It is alleged, amongst other things, that the defendants made unauthorised investments and use of the plaintiffs’ funds and that the first defendant (“Mischel”) improperly used his position as a director of the second plaintiff to gain a benefit for himself and companies that he controls. The plaintiffs seek common law, equitable and statutory remedies against the defendants.

The defendants do not contend that the plaintiffs have not shown a “good arguable case” against them within the meaning of r 37A.05(1)(b) of the Supreme Court (General Civil Procedure) Rules 2005. However they have contended that there is no risk that they will dissipate their assets so that a judgment against them may go unsatisfied. They have also submitted that the balance of convenience overwhelmingly favours the discharge of the orders.[1]
[1]Zen v Mo [2008] VSC 300.

The authorities make it clear that the plaintiffs must establish a “real risk” of dissipation of assets. In other words, they must establish that there is a danger that assets will be dissipated if the freezing order is refused.[2] The existence of a real risk or danger may be a matter of inference and there does not have to be evidence of a positive intention to frustrate a judgment.[3] However there must be “solid evidence” of the risk of dissipation.[4]
[2]Pearce v Waterhouse

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2011] VSC 40
Decision Date: 23 February 2011

CaseChat Overview and Summary

The matter before the court was an application by Mr Gloss Pty Ltd to extend ex parte freezing orders made against Henry Mischel. The plaintiff alleged serious dishonesty on the part of the defendant, which was not disputed. The court had to decide whether the allegations of dishonesty were sufficient to establish a risk of the defendant dissipating his assets, which were wholly secured.

The court held that the mere allegation of serious dishonesty was not enough to establish a risk of asset dissipation. The plaintiff needed to show that there was a real risk of the defendant dissipating his assets. Since the defendant's assets were fully secured, the risk of dissipation was effectively eliminated. The court noted that the onus was on the plaintiff to establish the necessary criteria for extending the freezing orders.

The court dismissed the application for an extension of the freezing orders, finding that the plaintiff had not demonstrated a real risk of asset dissipation. The court emphasised the importance of demonstrating a real risk when seeking to extend freezing orders, particularly in cases where the defendant's assets are secured. The application was dismissed with costs.

Orders